Imagine that today is July 1, 2020. Looking back I see three scenarios.
1) It's clear now that the company is a sham and Musk is a snake-oil salesman. It's all smoke, mirrors, bubblegum and baling wire. After hitting 5000 cars per week one time, they never reached that level again. The company had to do a punishingly dilutive capital raise just to get 6 months more runway, and the company's market cap is now $6 billion (down 90% from 2018).
2) The company has continued to stumble from failure to failure with just enough successes to delay the day of reckoning. Musk is still sleeping in the factory trying to iron out kinks in the manufacturing process and automation. They're producing 3000 cars per week, but the quality is so poor that 30% of cars must be returned to the factory for rework. Competitors are likely to match Tesla's battery technology in the next 3 years, and the company's market cap is down by 50% from 2018.
3) After many delays and billions of dollars of cost overruns, Tesla has perfected the "machine that builds the machine". It's producing 40,000 cars per week in three factories in the US, Europe and China, and a fourth factory in South Korea opens next year. Tesla is cash-flow positive and the company's market cap is $600B (up 10x from 2018). In hindsight, all the delays people anguished about in 2018 proved to be nothing but amusing anecdotes in the company's history.
I assign probabilities of 10%, 50% and 40% to these scenarios, which equates to an expected market cap of $250B in two years. At $60B today, it looks like a bargain.
Why should Tesla be worth 600B if they produce 2 million cars a year? Toyota makes 10M cars per year and has a market cap of less than 300B.
Future growth is already baked into Tesla's current valuation of 60B. They're not making any money today (in fact they're losing billions) but they have a high market cap because they might become profitable years from now. Once (if) they become a mature car manufacturer their valuation multiple will go way down. They'll be judged on their profit margin and FCF like any other car manufacturer.
Your best case scenario of Tesla growing their market cap by 550B in the next 2 years is completely unrealistic. Even Facebook didn't grow that quickly, and their profit margin is second to none.
Tesla's best case scenario is much more than an automaker. They also have hopes of being an energy company, a battery company, a transportation company, and a logistics company. There is still a lot of debate whether any of those will actually become profitable (and I think 2020 is a very aggressive timeline for any of this to happen), but there are huge potential revenue streams for Tesla that simply don't exist for other automakers like Toyota.
Toyota or Ford or any other car company can enter any of those fields, either directly or through investment. That they choose not to probably indicates that the risk/reward doesn't make sense for them, and they probably aren't worth that much if Tesla manages to pivot. They chose not to play in EVs until recently, for example, because the market appetite wasn't there
I am surprised to see this type of argument on HN of all places. One of the primary goals of any start up is to either create a new market or to serve a market that an incumbent is failing to properly serve. You can't just assume that because a company like Toyota hasn't done any of these things yet that there is no potential to gain from them. There are countless reasons why traditional powers fail to innovate and are eventually challenged by more forward thinking companies. I have no idea if Tesla will be that company long term. But the potential is there and that potential is what is fueling the hype.
GM/Toyota have the resources to start operating in the same markets that Tesla has ambitions for. And they are certainly keeping an eye on Tesla's actions.
After watching what Tesla is doing, they have chosen not to invest those resources even though if they did, they would beat Tesla at its own game quite easily because they eclipse it both in capital and experience.
Either their analysts are wrong and failing to see a winning strategy here, or there is no winning strategy. One of these two statements must be true. I've put my money on option #2, but I'm aware that large competitors aren't idiots and there is a risk here.
Elon Musk has also publicly stated that he wants the other big players to compete with Tesla. He doesn't actually care if Tesla is ever profitable or not, he just wants to force the world to transition off fossil fuels by dispelling the myths sown by the oil industry with concrete examples of success. It is stupid to ignore Musk's stance on this matter as an investor.
You have very skewed perception of how a company like GM operates. The incentives for managers are pretty short term they have 0 incentive to do a project that might pay off 5 years from now. In deciding on how to allocate capital there is 0 chance they will allocate it to doing high risk long term project vs doing a bigger truck now that they will sell next month at some ungodly margin.
Using this logic every start up would fail as soon as they showed their business model could lead to success and a bigger company swooped in a with their overwhelming capital and experience.
Right the argument isn't sound. It basically boils down to if big company x hasn't done it already, it's because it's not worth doing it. We know this isn't true because small players make improvements in their fields all the time. Big players aren't perfect, don't have unlimited resources, are prescient, and most of all, are ruled by people.
>If you ever pitch your startup idea to a VC, you're expected to explain how you're going to deal with this risk.
And that is exactly my point. Tesla certainly has strategies to respond if GM/Toyota enter their markets. You and TAForObvReasons are responding as if those companies will easily beat Tesla as soon as they make that decision.
> Tesla certainly has strategies to respond if GM/Toyota enter their markets.
Elon Musk's stated purpose for Tesla is to kill the fossil fuel industry, not to create a profitable enterprise. And he is tracking well towards that stated purpose. He actually wants those much bigger companies to start doing what Tesla is doing at scales that they can achieve and Tesla can't. He said this very clearly in an interview with DiCaprio. I don't know why people keep thinking there's some master plan to be profitable when the guy steering the ship has repeatedly said the plan is orthogonal to profitability.
As an investor, I am well aware of this. I'm also well aware that the profits of SpaceX eclipse what Tesla could achieve even in its best case scenario, so he probably really doesn't give a shit about making profit via Tesla.
I am not convinced he really changed the market's desire for EVs. He made a halo car, and now he is selling the baby version for Average Joe. I think the success of the Model 3 has a lot more to do with the brand than it does with it being an EV.
>Once (if) they become a mature car manufacturer their valuation multiple will go way down.
Somewhat answered your own question . It's if the market values Tesla as a mature company or a continues to value it as a growth company. When have we seen Elon rest with a successful product? Tesla is more than just cars. And Elon's answer to Gali (hyperchange YouTube channel) question during earnings about moats states his mindset clearly. He's about innovation. Innovate faster than competitor always. If Tesla can be cash positive, Elon will do what Bezos does. Demand that as much money as possible is reinvested. They're not going to be like Apple with tons of money sitting on the side.
I suspect that investors are looking at Tesla to be highly automated and have a high return on capital. There's also the hype so it keeps on going up looking for the last fool that buys before the stock's true value is found. It's easier to buy the stock than to figure out its future value.
I think Tesla won't be just a car company. Eventually, they will be a company with multiple branches in the same idea as Alphabet. But that's way in the future. First, they have to survive to profitability.
Musk himself said they made mistakes in trying to automate everything when manual approaches work better. And all cars made today are highly automated anyway so not sure why this is a unique advantage.
More and more Tesla is looking like a traditional car company. Especially as the traditional car makers are moving aggressively into EV.
Not to be rude, but these scenarios and percentages are all really random as is your valuation. Its far more likely they continue to do the same thing they have for the last year or two: limp through their slowly escalating production targets until the Model 3 is just one of several electric sedans available and there is no way to justify their multiples.
If these $45k cars are fully automatic (a big if for sure), then $45k will be a bargain price and would probably capture at least half the new car market.
(a) Tesla aren't the leaders in the self driving car space. Waymo arguably is, (b) almost all of the car makers have self driving car programs and most importantly (c) why would the traditional car makers just sit back, do nothing and allow Tesla to eat up the entire market ?
If Tesla can make it work without lidar, and that’s a huge “if”, they have a massive head start in training data. From a conference panel a few years ago that had Tesla, Waymo and some others on stage at the same time, Tesla was getting as much data in a week as Google was in months. That type of training data asymmetry is ripe for blowing past others. Again though that’s all conditioned on not needing lidar and I remain far from convinced their approach works for a true self-driving system.
Waymo's cars are connected to Waymo's servers with, I guess, gigabit ethernet (after they go back to base for the night), Tesla's cars are connected by mobile data, they'd have to pay billions to cell phone networks to get as much data.
I think Tesla is not the leader, they probably made a crucial mistake in not using the expensive lidar. But they have be far the most cars on the road with early versions of this tech that has worked pretty well in my car for 4 years.
Your world view is too narrow. That 5000 figure is important, but it's not really meaningful in the grand scheme of things.
There is a 4th or 5th scenario, where
4. other car makers trail behind Tesla more and more in terms of technology. Remember, all these car makers had DECADES of head start developing EVs before Tesla was even born. Tesla was supposed to trail them in tech, not the other way around.
It's easy to assume that because a company is bigger, and have more resources and manufacturing experience, that they can move fast in developing tech. It's easy to judge a book by it's cover. Incumbents move slow ALWAYS. If moving fast was so easy, they would of done it before Tesla was born.
5. solar panels from SolarCity come into play.
Tesla has already deployed Solar grids in Australia. It's not just "smoke and mirrors", it's actually in production.
While the competitors are still trying to "match Tesla", Tesla has already moved on to find other areas to grow in tech advancement.
Right now, solar panels are considered a "toy". It's not even on any of the car makers' radar. It's like how Tesla's first Roadster cars were not on any of the car maker's radars 5 years ago. It's a "toy" until one day, it becomes a reality, and you tout your ability to "catch up" with your "vast experience"
5 years from now, folks like you will write another article, about how GM will be able to produce solar panels to "catch up to Tesla in just one or 2 years"
> 4. other car makers trail behind Tesla more and more in terms of technology. Remember, all these car makers had DECADES of head start developing EVs before Tesla was even born. Tesla was supposed to trail them in tech, not the other way around.
> It's easy to assume that because a company is bigger, and have more resources and manufacturing experience, that they can move fast in developing tech. It's easy to judge a book by it's cover. Incumbents move slow ALWAYS. If moving fast was so easy, they would of done it before Tesla was born.
This isn't silicon valley. There is years of design and manufacturing experience that Tesla simply does not have. This isn't a software project where someone in a garage can make it and scale it. Tesla can build luxury cars because budget constraints are significantly less. Now they're struggling with the constraints like everyone else.
Other car makers are just as competitive now. The reality is the Chevy Bolt is a great start and will only be improved upon. Elon Musk has no monopoly on technology. There are competitors in almost every sector. Many great engineers are elsewhere.
And the reality is - most people don't care about EV right now. Sedans are struggling mightily. Americans are buying SUVs and crossovers right now. General car manufacturers are able to easily switch production when the market shifts. Tesla can't even make a budget friendly car. Their model 3 will be out of most of the market's price range. Meanwhile GM can still make a Sonic and Cruze or a pickup truck.
> Right now, solar panels are considered a "toy". It's not even on any of the car makers' radar. It's like how Tesla's first Roadster cars were not on any of the car maker's radars 5 years ago. It's a "toy" until one day, it becomes a reality, and you tout your ability to "catch up" with your "vast experience" 5 years from now, folks like you will write another article, about how GM will be able to produce solar panels to "catch up to Tesla in just one or 2 years"
Gee why didn't GM buy FirstEnergy or Duke Energy! They're so behind in the energy industry...This argument isn't even worth debating. GM is not a power company. They do not want to be.
It has nothing to do with Silicon Valley. The geography is meaningless. The only thing that matters is staying ahead of the curve. It's always going to be hard for GM to do that, because it's focus is always going to be on incremental improvements of the same way of doing things. The "years of design and manufacturing experience" you mention.
Look at their $1B acquisition in Cruise Automation. Like you said, GM is not a power company, its' a car company. Its' business is cars. GM should have developed self-driving tech internally, and not had to buy it. Cars is GM's job. But GM missed that boat entirely, because everyone in GM is focused on incremental improvements on manufacturing.
Even your comment mentions that "most people don't care about EV right now." EV is not a big focus for GM. Sure it has the Chevy Bolt, but that only began development 10 years after Tesla started. GM does not care about EVs right now. It's focus is still on manufacturing traditional cars, and will continue to be this way until someone else forces them to change.
> The only thing that matters is staying ahead of the curve. It's always going to be hard for GM to do that, because it's focus is always going to be on incremental improvements of the same way of doing things. The "years of design and manufacturing experience" you mention.
This isn't true. They can continue to make their general automotive improvements while also upskilling in EV - the Bolt is a prime example of that. Frankly, they beat tesla to the punch there.
> Look at their $1B acquisition in Cruise Automation. Like you said, GM is not a power company, its' a car company. Its' business is cars. GM should have developed self-driving tech internally, and not had to buy it. Cars is GM's job. But GM missed that boat entirely, because everyone in GM is focused on incremental improvements on manufacturing.
Hmm, you mean like Tesla bought the solar manufacturer for Solar City? Is that not acceptable to you? You bring up an argument against your point. GM can easily purchase anyone. If they slightly miss something a purchase is all that's needed.
> Even your comment mentions that "most people don't care about EV right now." EV is not a big focus for GM. Sure it has the Chevy Bolt, but that only began development 10 years after Tesla started. GM does not care about EVs right now. It's focus is still on manufacturing traditional cars, and will continue to be this way until someone else forces them to change.
EV is a big deal to GM because they know where the future is heading. They also are not hemorrhaging money and burning runway because they also have a sustainable business now. So they can do both.
Meanwhile Tesla can't even scale a 35K car. They're a luxury brand. period.
As the price of oil continues to climb, EVs become more affordable than internal combustion vehicles. Seems like a poor time to drop your sedan production in favor of SUVs with oil prices climbing, considering Americans are already changing their behavior due to existing price momentum at the pump.
As it continues to? Please look at oil prices over the last 20 years. You will see a lot of fluctuation.
> Seems like a poor time to drop your sedan production in favor of SUVs with oil prices climbing,
GM can do this. They can change production so quickly that when oil is cheap and people want SUVs (aka now) they can do that. And when it is not, they can change production back to sedans and EV. Much more flexibility.
Please. GM has nowhere near the EV manufacturing capacity of Tesla. They also have a dealer network that is not interested in pushing EVs over internal combustion vehicles.
The batteries are what connect them. No one else will be making batteries at that rate, at least for a pretty long time. Tesla has the cheaper batteries and related tech to use them in solar power along with cars.
I'd assume that the Chinese electric car and bus manufacturers, who make far more vehicles than Tesla, are making batteries at a much greater rate (or at least their suppliers are).
Assuming the standard meaning of the phrase "snake-oil salesman", I think the odds that this is all an elaborate sham to knowingly dupe people into buying a product that doesn't exist converge on zero.
But, the case can certainly be made that he is prone to hyperbole and "exuberant optimism".
There's a 0 percent chance he's a snake oil salesman. There a reasonable chance his company won't succeed because of a problem making the cars cheap enough. But still they are awesome cars. Pretty soon they will be the only company in the US that has sold enough EVs that the tax credit runs out. That will really piss off the tesla haters who will have one less reason to claim it's all a gyp or whatever.
There’s also option 4, which I would say is most likely; Tesla is gone; the brand is owned by someone else. In practice, 1 and 2 would likely lead to this scenario.
Panasonic takes those and makes battery cells. Think AA battery. That part is done as a joint venture between Panasonic and Tesla which means Tesla contributes to the design e.g. Tesla employs people doing research into battery chemistry i.e. cell level R&D. (and so does Panasonic, to be clear).
Tesla takes those battery cells and packages them into a battery modules, which they also design. That part is all Tesla.
That description doesn't adequately describes how much technology and work goes into making battery modules. Cells are an important component but it's also inverters, multiple electronics boards, software to control it all.
TL;DR: it would be grossly misleading to say that "battery tech is Panasonic". Battery cells are important but battery packs are designed and manufactured by Tesla.
1) It's clear now that the company is a sham and Musk is a snake-oil salesman. It's all smoke, mirrors, bubblegum and baling wire. After hitting 5000 cars per week one time, they never reached that level again. The company had to do a punishingly dilutive capital raise just to get 6 months more runway, and the company's market cap is now $6 billion (down 90% from 2018).
2) The company has continued to stumble from failure to failure with just enough successes to delay the day of reckoning. Musk is still sleeping in the factory trying to iron out kinks in the manufacturing process and automation. They're producing 3000 cars per week, but the quality is so poor that 30% of cars must be returned to the factory for rework. Competitors are likely to match Tesla's battery technology in the next 3 years, and the company's market cap is down by 50% from 2018.
3) After many delays and billions of dollars of cost overruns, Tesla has perfected the "machine that builds the machine". It's producing 40,000 cars per week in three factories in the US, Europe and China, and a fourth factory in South Korea opens next year. Tesla is cash-flow positive and the company's market cap is $600B (up 10x from 2018). In hindsight, all the delays people anguished about in 2018 proved to be nothing but amusing anecdotes in the company's history.
I assign probabilities of 10%, 50% and 40% to these scenarios, which equates to an expected market cap of $250B in two years. At $60B today, it looks like a bargain.